Invest In India » mutual fund investments? http://investmoneyinindia.com Indian Financial News Resource Mon, 13 Feb 2012 09:05:04 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 When To Sell A Mutual Fund? http://investmoneyinindia.com/3412/when-to-sell-a-mutual-fund http://investmoneyinindia.com/3412/when-to-sell-a-mutual-fund#comments Mon, 05 Sep 2011 07:41:37 +0000 Malvika http://investmoneyinindia.com/?p=3412 ©2009 Copyright by Invest In India

]]> Start making the decision:
It is vital for an investor, to have long-term investment plans.  But he needs to constantly verify if these funds are helping him to achieve his financial objectives. You, as an investor need to keep track of how your investments in mutual funds are growing. Also you need to make sure that you do not suffer huge losses due to non-performance.

As an investor you need to learn not only when to buy but also when to sell a mutual fund.  Learning the principles of when to sell a mutual fund helps weed off investment in unprofitable mutual funds and build up a desirable and profitable portfolio of mutual fund investments.

Look at situations to sell mutual funds:

Chronic Under-performer:
Investor should stay invested for long tern in a risky asset class like equity. You should wait patiently for a minimum period of 5 years to watch your investments grow. Making comparisons between similar funds proves futile.

However you should make a note if your fund is continuously under performing. Comparing each of your funds with the respective fund benchmark index for various periods like 2 years, 3years and 5 years helps. You may need to move out of a continuous under performer and move in to a continuous performer.

Changes in objectives of your mutual fund:
Next, an investor like you, investing with definite financial objectives with allocation to different sectors and market capitalization may feel uneasy and suspicious with the change in the fund’s objectives that exposed you to greater risk or risk in other sectors also.

Fund takeovers, change of ownership and mergers change the level of risk in a mutual fund portfolio. So you as an investor may find your need, not met and may want to sell the fund. This was the reason why many investors, who invested in UTI Mastergrowth Fund, sold their funds when it changed to UTI Top 100 Fund.

Repositioning of a fund:
Though the fund has got an investment objective to invest in various market caps, so far the fund may be investing only in midcaps and positioned in the market as a large cap fund. But later, the fund may reposition the same fund as a multi cap fund and start investing in large cap stocks also. This change may not be a suitable one for an aggressive investor.

So as an investor, you need to be careful in watching the funds after investing. That too when a fund changes its positioning, you need to keep a close track of the same to prevent your investments from any adverse effect.

Appreciation in investment attained:
It is quite possible that your investment could have been shrewd and calculated and achieved the targeted appreciation ahead of time. I congratulate you, but would like to tell you that greediness may also make you lose on that foresighted gain.  Selling off your fund in full or part and investing in safer avenues like debt funds, fixed maturity plans and fixed deposits of companies and in banks would safeguard your money yet give you some small return.

Say you wanted to accumulate Rs.10 lacs for the higher education of your daughter/son in 5 years time. Your investments have appreciated to 10 lacs at the end of 4 year itself. It is better to change it immediately to safe and non-risky investments. If you leave the investments in the same fund, it may come down in value because of the subsequent market fall.

So when the goal value has been reached, one needs to protect the appreciation by moving out from the existing risky investments and moving in to a safer investment.

Rebalancing based on the asset allocation:
As an investor you need to maintain an overall asset allocation ratio and you need to stick to it to gain more. Sometimes your investments have appreciated and this has increased the percentage of your portfolio in equity and maybe reduced the percentage on debt and other safe avenues.

You need to realize this means that you are exposing more of your investment to the volatile equity market that was risky. This could surely be remedied with rebalancing. That is selling a portion of the over appreciated asset and reinvesting the same in the lesser appreciated asset.

Selling funds to Achieve:
I am sure you would have understood these principles of when to sell a mutual fund. This will assist you in taking better investment decisions and achieving your financial goals.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 




©2009 Copyright by Invest In India

]]> http://investmoneyinindia.com/3412/when-to-sell-a-mutual-fund/feed 0 Indian money on a global tour http://investmoneyinindia.com/1813/indian-money-on-a-global-tour http://investmoneyinindia.com/1813/indian-money-on-a-global-tour#comments Mon, 03 Aug 2009 12:04:00 +0000 Tushar Mathur Indian investors have been witnessing a larger choice in terms of their mutual fund investments. This is now being broadened with the launch with a variety of international funds that will jostle for space in their portfolio.

The increasing choice will also mean new decisions to be taken by investors, because they will have to see whether the new funds match with their requirements. With their investment horizon now stretching across the world, there is an added benefit that can be used by investors in ensuring they are able to build a quality portfolio.

International funds

International funds are those MF schemes that invest a part of their corpus in equities or debt in foreign countries. This allows the Indian investor to get an exposure to foreign markets and investments without having to use foreign currency.

It thus becomes a route to diversify the portfolio across countries and geographies, so it is a useful tool to consider for investors who have a broad portfolio.

Indian mutual funds now provide investors an option to invest in the markets of both developed as well as developing countries and hence there is a wide choice available.

There are a couple of routes used by MFs in terms of the structure of the schemes they make available for investors. One of these is to have direct investments into the equities in other countries.

The second route commonly used is to have an investment in another fund, which has investments in foreign companies, and this is known as a feeder fund. Another variant is that the scheme will invest in multiple funds that have foreign investments, making it a fund of funds.

New funds and performance

There are several new funds being launched or that have been launched in the past year. Some of the funds that are open for the purpose of investment include the JP Morgan JF Greater China Equity Offshore Fund and DSP Blackrock World Energy Fund.

Emerging market funds and gold and other mining companies have been launched in the past and these are open for investments for investors on an ongoing basis.

It is also interesting to see how existing schemes have performed. On this front, there has been a mixed bag and at the same time the figures are not exactly comparable, because each of the funds have a different investment guidance and outlook.

Franklin Asia Equity Fund has notched a 12 per cent return and there is a large foreign component of the portfolio that has boosted return here. Fidelity International Opportunities has returned around 4 per cent in the past year, while Pru ICICI, India Asia Equity Fund has a 5 per cent return and Fortis China India is slightly better than 6 per cent. All these schemes have a majority investment in Indian equities and only a part in foreign equities.

DSP World Gold Fund, which invests in mining company stocks across the world, has a slightly negative return. While AIG Gold Fund has ended on the positive side. The average cost of the funds that invest in both Indian and foreign markets is around the 2.1-2.5 per cent mark.

Franklin India International Fund invests in foreign debt markets in US Government securities, so this stands apart as another type of fund and this has returned double-digit figures in the past year due to the recent rally in the US securities market. This has an expense ratio of around 0.75 per cent, which is lower due to it being a debt fund.

Taxation

In terms of the taxation of these funds, their portfolio plays a very important role in determining the impact. If the average equity component of Indian equities is 65 per cent or more of the holdings, then the scheme will be classified as an equity oriented one for the purpose of tax benefits in India.

This means there is no dividend distribution tax and the long-term capital gains will have a zero tax rate, and the short-term capital gains will have a 15 per cent tax rate. This will include all those funds with a mixture of Indian and foreign equity, and at the same time, over 65 per cent of the equity is in Indian stocks.

Funds which invest in other foreign funds, including feeder funds and fund of funds, will be classified as a debt scheme and there will be a dividend distribution tax on the dividend paid by these schemes.

In addition, the short-term capital gains will be added to the income, while the long-term capital gains will be taxed at 10 per cent without indexation or 20 per cent with the benefit of indexation.

Investors can plan their investments in such a manner that around 10-15 per cent of their portfolio is invested in such schemes, as they will provide an exposure to other securities and countries, which would not be possible in other circumstances. This will lead to the required diversification of the portfolio.

©2009 Copyright by Invest In India

]]> Indian investors have been witnessing a larger choice in terms of their mutual fund investments. This is now being broadened with the launch with a variety of international funds that will jostle for space in their portfolio.

The increasing choice will also mean new decisions to be taken by investors, because they will have to see whether the new funds match with their requirements. With their investment horizon now stretching across the world, there is an added benefit that can be used by investors in ensuring they are able to build a quality portfolio.

International funds

International funds are those MF schemes that invest a part of their corpus in equities or debt in foreign countries. This allows the Indian investor to get an exposure to foreign markets and investments without having to use foreign currency.

It thus becomes a route to diversify the portfolio across countries and geographies, so it is a useful tool to consider for investors who have a broad portfolio.

Indian mutual funds now provide investors an option to invest in the markets of both developed as well as developing countries and hence there is a wide choice available.

There are a couple of routes used by MFs in terms of the structure of the schemes they make available for investors. One of these is to have direct investments into the equities in other countries.

The second route commonly used is to have an investment in another fund, which has investments in foreign companies, and this is known as a feeder fund. Another variant is that the scheme will invest in multiple funds that have foreign investments, making it a fund of funds.

New funds and performance

There are several new funds being launched or that have been launched in the past year. Some of the funds that are open for the purpose of investment include the JP Morgan JF Greater China Equity Offshore Fund and DSP Blackrock World Energy Fund.

Emerging market funds and gold and other mining companies have been launched in the past and these are open for investments for investors on an ongoing basis.

It is also interesting to see how existing schemes have performed. On this front, there has been a mixed bag and at the same time the figures are not exactly comparable, because each of the funds have a different investment guidance and outlook.

Franklin Asia Equity Fund has notched a 12 per cent return and there is a large foreign component of the portfolio that has boosted return here. Fidelity International Opportunities has returned around 4 per cent in the past year, while Pru ICICI, India Asia Equity Fund has a 5 per cent return and Fortis China India is slightly better than 6 per cent. All these schemes have a majority investment in Indian equities and only a part in foreign equities.

DSP World Gold Fund, which invests in mining company stocks across the world, has a slightly negative return. While AIG Gold Fund has ended on the positive side. The average cost of the funds that invest in both Indian and foreign markets is around the 2.1-2.5 per cent mark.

Franklin India International Fund invests in foreign debt markets in US Government securities, so this stands apart as another type of fund and this has returned double-digit figures in the past year due to the recent rally in the US securities market. This has an expense ratio of around 0.75 per cent, which is lower due to it being a debt fund.

Taxation

In terms of the taxation of these funds, their portfolio plays a very important role in determining the impact. If the average equity component of Indian equities is 65 per cent or more of the holdings, then the scheme will be classified as an equity oriented one for the purpose of tax benefits in India.

This means there is no dividend distribution tax and the long-term capital gains will have a zero tax rate, and the short-term capital gains will have a 15 per cent tax rate. This will include all those funds with a mixture of Indian and foreign equity, and at the same time, over 65 per cent of the equity is in Indian stocks.

Funds which invest in other foreign funds, including feeder funds and fund of funds, will be classified as a debt scheme and there will be a dividend distribution tax on the dividend paid by these schemes.

In addition, the short-term capital gains will be added to the income, while the long-term capital gains will be taxed at 10 per cent without indexation or 20 per cent with the benefit of indexation.

Investors can plan their investments in such a manner that around 10-15 per cent of their portfolio is invested in such schemes, as they will provide an exposure to other securities and countries, which would not be possible in other circumstances. This will lead to the required diversification of the portfolio.

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]]> http://investmoneyinindia.com/1813/indian-money-on-a-global-tour/feed 0 Are you disappointed with your mutual fund investments? http://investmoneyinindia.com/209/are-you-disappointed-with-your-mutual-fund-investments http://investmoneyinindia.com/209/are-you-disappointed-with-your-mutual-fund-investments#comments Mon, 15 Sep 2008 17:54:28 +0000 Tushar Mathur http://investmoneyinindia.com/?p=209 ©2009 Copyright by Invest In India

]]> Few would dispute that the year 2008 has been tough on investors. This holds especially true for first-time investors i.e. the ones whose tryst with equity markets only began in the last few years. After having seen the markets surge to record highs, the downturn has certainly caught several investors off-guard.

And the despondency is not restricted only to those who have participated in equity markets via the direct equity investment route. Even investors in equity mutual funds have borne the brunt of falling markets. As a result, several investors are in panic mode. Some are even contemplating redeeming all their mutual fund investments and instead making investments in risk-free avenues like fixed deposits and bonds.

But is that the right course of action? We don’t think so. To begin with, investors must conduct an honest appraisal of their risk profile and investment horizon. Also, they must candidly answer the question – why did I get invested in a given mutual fund?

If an investor truly believes that he can take on higher risk and is willing to stay invested for the long-haul (at least 3-5 years), then we believe there is no reason to panic. In fact, given the attractive valuations, investors should consider adding to their investment portfolios. As regards, the reasons for getting invested – if it was to achieve a predetermined investment objective, then it’s all the more reason to stay the course.

Conversely, if the answers are on the lines of ‘have a low risk appetite’, ‘wanted to make a quick buck’ or ‘to ride the rising markets for the short-term’, there is a cause for concern. Such investors got invested in avenues that were wrong for them or made investments for the wrong reasons. In either case, they would do well to work out an exit strategy in consultation with their investment advisors.

As for investors who have the requisite risk-taking ability, investment horizon and clearly defined objectives backed by investment plans, it’s a good time to evaluate if they are invested in the right avenues i.e. in this case, the right mutual funds. Even the best of plans will not deliver if poorly-managed funds are deployed to achieve them. However the evaluation process needs to be a proper one.

To begin with, investors would do well to understand the fund’s nature and investment style, before evaluating its performance. For example, an aggressively-managed equity fund that professes to take stock and sector bets should be expected to deliver above-average results in rising markets. On the other hand, when markets move southwards, such a fund is likely to be worse hit as well. This is keeping in line with the fund’s high risk – high return investment proposition. Comparing the fund’s performance on the downturn with that of a conservatively-managed equity fund would be unfair, akin to comparing apples with oranges.

Similarly, understanding the fund’s investment universe is vital as well. For instance, a professed mid cap fund would be predominantly invested in stocks from the mid cap segment. Expecting it to feature among the top performers at a time when large caps are rallying would be unfair.

Another common mistake is considering funds in isolation. Any advisor worth his salt will emphasise on the importance of diversification. Hence the norm is existence of investment portfolios, instead of investments in single funds in a standalone manner. The key to a well-constructed portfolio is that the downturn in an investment avenue can be offset by an upturn in another. Similarly in a mutual fund portfolio, the presence of diverse investment propositions and styles should help the investor’s cause. Broadly speaking, so long as the investment portfolio is on course to accomplish the predetermined investment objectives, investors should be fine.

Clearly conducting an appropriate evaluation is easier said than done. Hence investors would do well to engage the services of their investment advisors for the evaluation exercise. The next step is to take corrective measures.

Now depending on the specifics of each case, it could vary right from altering the allocations to various funds, exiting some funds and investing in new ones to doing nothing. Surprised? Don’t be. It’s possible that investors are already invested in funds that are right for them and in the right allocation as well. And it is not uncommon even for the best of funds to hit a rough patch. If no material changes have occurred in a fund’s investment proposition and its ability to deliver over the long-term is undiminished, keeping the faith and staying put wouldn’t be a bad idea.

The importance of the evaluation exercise, especially in testing times cannot be overstated. From an investor’s perspective, the key lies in striking a balance between pressing the panic buttons and being complacent. Also, engaging the services of a competent investment advisor is vital.

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